What is Nash's balance?
named for economist and mathematician John Forbes Nash, Jr., Nash balance is a special kind of solution in the game theory. The theory of games itself is a type of applied mathematics, common in economics and other fields in which the strategic behavior of two or more individuals or entities is mathematically captured. The NASH balance is a situation where, given the measures of other players involved in the competition, no player is a better change in his own action. In economics, the application of NASH balance includes prices between competing companies.
and Nash Equilibrium can be seen on an example of a simple market where two companies sell the same product and have the same profit margin for the unit sold. In this example, in this example, their profits are determined by the number of products sold, which is determined by the price. If companies may decide to determine its price for $ 1 dollar, $ 2 or $ 3, the best price for the best cost will be influenced by the price set by the second company. NASH equation will be achieved if neither company benefits from changing its price, unless the other company changes its price.
If both companies have set the price of $ 3 in this example, each company could have motivated the price if the other company maintains its price at $ 3, if lower income per unit is more than compensated by increasing sales. If so, the total profit for this company will increase, while the total profit for a company that maintained the same price is likely to decrease due to a decline in sales. If both companies set the price of $ 2, each will have motivation to reduce the price to $ 1 for the same reason. If both companies determine the price of $ 1 in this example, Nash's balance will be equilibrium because no company will have motivation to include your price if the other company keeps its price for $ 1. In this example, ifOne company would increase its price to $ 2, its decline in sales would more than balance increased revenues per unit and the company's total profit would decrease.
In the real world, conditions are much more complicated than in this simple example. It may be difficult to determine whether the price change and the resulting change in the number of products sold will lead to an increase or decrease in total profits. Other conditions that could get into the game are things like markets with more than two competing companies, overlapping markets and the effects of products that are similar but not identical.
When the NASH balance is achieved and even a competitive society does not have the motivation to change its price, it often forces societies to compete in other ways. For example, the company could be able to increase its profits by reducing operating and production costs. ALSO can be forced to produce a better product or come up with other innovations.
There are several things that you can note about Equilibria Nash. WhatIf the competitive market does not have to have any Nash balance, one NASH balance or multiple NASH balance. It is also important to realize that although each company allows the best choice due to the selection of competition, not all NASH results provide the highest combined profits to participating companies. Often there are cases where combined profits could be higher if companies could agree to change their actions and cooperation, but this behavior often forbids antitrust legislation intended to support competition between companies.